Handelsbanken Remains Decentralized in an Era of Centralized Commoditization

Handelsbanken is just an ordinary retail bank at first glance. This Swedish bank offers consumer and corporate banking, investments, trading and life insurance. It keeps its ‘old fashioned’ banking styles while providing first-rate banking service. By global standards, Handelsbanken is a relatively small company. It operates 457 offices in Sweden, 162 branches in the UK and Nordic countries, and 17 in other countries. It employs over 11,000 employees and its assets are estimated at SEK2 billion.

In an era of centralized commoditization, Handelsbanken’s business model is found to be very effective despite its simplicity. Its business philosophy is embedded in its corporate slogan: “Banking is global. Business is local.” The bank has maintained personalized services as decision making is decentralized. Each Handelsbanken branch operates as an independent profit and cost center and is responsible for its own fiscal management.

Management in Handelsbanken is ‘bottom up’. Performance evaluation is focused on the monthly income statement. Some key financial ratios are benchmarked. Each local manager is required to produce his own business plan. He makes the decision on staff hiring, retention and firing, product packaging and pricing, and marketing. Most importantly, the local manager is empowered to choose the bank’s customers, shifting the business strategy from product profitability to customer profitability.

Decentralized operations resulted in 98% of credit decisions made at the local level. As branch managers carefully scrutinize their clients, the resulting high credit score has helped Handelsbanken in its total operations.

The bank’s simple business model is also carried over into the bank’s online banking. Each Handelsbanken branch maintains its own website and email. Handelsbanken’s internet banking has penetrated 40% of the consumer market and 70% of the corporate market. Online banking has tremendously reduced the workload while significantly increasing the bank’s overall efficiency.

Since 1973, Handelsbanken has exceeded the weighted average of similar banks each year. The bank’s goals of customer service at the lowest cost possible seem incompatible, but Handelsbanken has the most satisfied clients. Its cost-to-income ratio is very high at 40.5%.